US stocks took a hit on Thursday as the latest Gross Domestic Product (GDP) report revealed a significant slowdown in economic growth during the first quarter of the year. The Dow plummeted by 441.1 points, down 1.2%, while the S&P 500 dropped by 0.8% and the Nasdaq Composite slid by 1.1%. This decline came as investors predicted a longer wait for the first rate cut from the Federal Reserve.

The GDP report indicated that US economic growth reached only 1.6% in the first quarter, which was a much weaker pace than expected. Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, stated in a note that this report represented "the worst of both worlds" with slowing economic growth and persistent inflationary pressures.

After experiencing a strong second half of 2023, economic growth appears to be returning to more modest levels. GDP grew by 4.9% and 3.4% during the third and fourth quarters of last year, respectively. However, inflation has accelerated in the first three months of this year, as demonstrated by the annualized GDP chain price, which rose from 1.6% to 3.1%. Zaccarelli emphasized that while the Federal Reserve aims to see inflation decline, the market anticipates economic growth and increasing corporate profits. If both factors fail to align, it could spell trouble for the markets.

The persistently high inflation rates have led investors to revise their expectations for interest rate cuts by the Federal Reserve. Currently, they are only anticipating one cut this year, according to the CME FedWatch tool. This projection is a significant decrease from the initial expectation of six cuts at the start of the year.

Furthermore, fears of stagflation, a period of stagnant economic growth coupled with persisting inflation, have resurfaced. Jamie Dimon, CEO of JPMorgan Chase, warned investors about the potential resurgence of stagflation during a speech at the Economic Club of New York. He expressed concern that the current economic climate resembled the 1970s, characterized by limited growth and inflationary pressures.

Historical data supports these concerns, as analysis by Ben Carlson at Ritholtz Wealth Management indicates that investors in the US stock market lost over 35% (after adjusting for inflation) during the stagflation era, which lasted from 1966 to 1981.

The tech sector also felt the impact of the economic slowdown, as investors worried about the growth prospects of technology companies amidst an already tense earnings season. Shares of Meta plunged by more than 11.4%, while Microsoft and Amazon experienced declines of 3.2% and 2.4%, respectively.

As the markets face the challenges posed by slowing GDP growth and persistent inflation, investors will closely monitor the actions of the Federal Reserve and economic indicators to guide their future investment decisions.